Broad tax relief should ease burden on working poor

THE ISSUE Democratic legislative leaders are backing measures to provide tax credits and rebates to low-income working families.

DESPITE tax credits enacted by last year's Legislature, Hawaii continues to be among the most merciless states in taxing the working poor. Legislative leaders now appear to favor a tax rebate and wage supplement used by the federal government and most states. The Lingle administration and lawmakers should work toward a comprise providing special relief to low-income working families.

Enacted by a Democratic Congress in 1975 and signed into law by President Gerald Ford, the federal earned income tax credit has been expanded in every administration since then. President Ronald Reagan called it "the best anti-poverty, the best pro-family, the best job- creation measure to come out of Congress."

The system is designed to benefit poor working families with dependent children by providing tax credits to those making low wages and rebates to the most needy, phased out as their income increases. States that use the system provide credits ranging from 5 percent to 50 percent of the federal amounts. Hawaii's Legislature is considering a rate of 20 percent of the federal formula.

A tax package totaling nearly $50 million and signed into law by Gov. Linda Lingle last year widened tax brackets but did little to help the working poor. "Under this measure," said State Tax Director Kurt Kawafuchi, "Hawaii moves from the second-worst to the fifth-worst state in terms of taxing the poor."

Actually, according to the Washington-based Center on Budget Priorities, Hawaii's income tax system remains "among the four most burdensome in the nation" for the working poor. Hawaii's tax rates for one-parent families of three with incomes at the poverty line of $16,222 and at 125 percent of the poverty line -- $20,153 -- are now the very worst, following tax reform in Alabama, which previously had the cruelest tax formula.

Lingle is proposing a broad tax package including standard deduction increases, income exemptions and inflation adjustments that would cost the state $60 million. The earned income tax credit being considered by the Legislature at a cost of $24 million would move Hawaii to being one of the 10 most compassionate states toward the working poor.

The Center on Budget Priorities estimates that the Lingle package would reduce the income tax for a one-parent family of three at the poverty level from $294 to $82 and for such a family at 125 percent of the poverty level from $546 to $296. Those would be significant reductions, but the earned income tax credits being considered would result in rebates of $558 and $138 respectively.

A compromise scaling back the Lingle package and adding earned income tax credits would recognize the plight of the working poor and provide deserving tax relief to middle-income families.